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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 39039
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Does ERISA apply to Individual Retirement Accounts created

Resolved Question:

Does ERISA apply to Individual Retirement Accounts created by the 'roll-over' of a Defined Benefit Pension Plan?
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 6 years ago.
Courts disagree whether a debtor who rolls over funds from a fully exempt ERISA-qualified retirement plan to an IRA account can thereafter exempt only the amount necessary for his or her support. See In re Mooney (BC CD CA 2000), 248 B.R. 391 at 396-403 (exemption limited after rollover into IRA to amount necessary for support); cf, McMullen v. Haycock (2007) 147 Cal.App.4th 753, 758-761, 54 Cal.Rptr.3d 660, 662-665 (where fully exempt and traceable funds are rolled into debtor's IRA, they remain fully exempt and not subject to support amount limitation).

Hope this helps.

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Customer: replied 6 years ago.

ToCustomer Your answer didn't address my issue. In a bankruptcy action the Dept. of Labor has obtained an extension of time to object to the discharge of any claims potential creditors might against the debtor. The Dept. of Labor extension applies to all plans affected by ERISA. Is my IRA (which was rolled over from a defined pension plan) covered by the Dept. of Labor time extension which applies to ERISA plan?


Expert:  socrateaser replied 6 years ago.
I'm sorry that I did not reach your ultimate issue, but since you are only now disclosing it, I could do no more than answer the question as asked -- which is what I did.

You now seem to be suggesting that your ERISA account is an employer-sponsored account intended to provide retirement benefits to employees (of whom you may be one).

If so, and you rolled the ERISA account over into an IRA with the ultimate effect of depriving your employees of retirement benefits held in trust for them, then that would be a breach of trust under ERISA, and the DOL could sue you personally for the breach on behalf of the other employees for a misappropriation of assets and obtain a constructive trust over those assets so as to force their return.

This would be more than just a bankruptcy action, because assets held in trust for others is not part of a debtor's bankruptcy estate, which means that the lawsuit would be heard in federal district court, and the bankruptcy court would have no jurisdiction. Naturally, the bankruptcy court would have to lift the automatic stay, but, if what I'm describing is the character of the action, then that would be a formality, or at least a foregone conclusion, should you choose to resist.

Note: I'm not suggesting that you intended to defraud anyone here. I'm simply explaining how the legal cards would fall, unless your IRA form continues to protect the employees' retirement benefits to the same extent as did the ERISA account.

Hope this helps.

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Customer: replied 6 years ago.
I am not making myself clear. I am the beneficiary of an IRA. The IRA resulted from the rollover of my own corporation's defined benefit plan. The corporation was a professional corporation of which I was the only beneficiary. My IRA made an investment in a real estate fund. My IRAs investment in the fund was made through an individual who was a sponsor of the fund and was a 'personal friend'. The 'friend' has declared Chapt. 11 bankruptcy. The time within which objections to dischargeability of tort claims against my friend who is in bankruptcy expired today but not before the Dept. of Labor obtained an extension of the discharge date and date within which claims may be filed. The Dept. of Labor extension extended to 'plans covered by ERISA'. There are many IRAs involved as investors in this real estate fund and some pension plans were also investors. Are the IRAs beneficiaries of the time extension obtained by the Department of Labor. I cannot be any clearer in propounding my question.
Expert:  socrateaser replied 6 years ago.
Thank you for the additional information. I'm sure that you realize that your facts are extraordinarily complex, so there is no way that I could possibly understand them without substantial explanation.

Under Treas. Reg. § 401(a)(2)(i), "In order for a pension plan to be a qualified plan under section 401(a), the plan must be established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to its employees over a period of years, usually for life, after retirement."

Based upon the above-quoted regulation, if your rollover IRA is not either an SEP or SIMPLE IRA, then it is an individual IRA account, and though it may only hold what was originally ERISA-qualified assets, the account is no longer ERISA qualified, because it is established and maintained by you as an individual, rather than as an employer.

If your goal is to obtain the benefit of the DOL extension, then perhaps you could argue that despite the account being a rollover, it is nevertheless maintained by you as an employer for yourself as an employee. I know of no supporting case law for this proposition, but that's how I would argue it, given what appears to be a "bright-line" requirement of the Treasury Regulation.

Hope this helps.

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